Greif, Inc.

Good day. Thank you for standing by. Welcome to the Grife Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Donofrio, Vice President of Investor Relations and Corporate Development.

Thank you, and good day, everyone. Welcome to Grice Fiscal Third Quarter 2024 Earnings Conference Call. During the call today, our Chief Executive Officer, Ole Rosgaard, will provide you an update on current business trends, as well as the latest updates on our ongoing operating model change, which will be a focal point of our upcoming Investor Day on December 11th. Our Chief Financial Officer, Larry Hilsheimer, will provide an overview of our third quarter financial results and our fiscal four-year guidance. In accordance with regulation fair disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material non-public information with you on an individual basis. Please turn to slide two. During today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. I'll now turn the presentation over to Ole on slide three. Thank you, Bill. Hello, and thank you for joining us.

Over the past quarter, I've had the privilege of visiting many of our more than 250 plants around the world. Each week, I make it a priority to spend time with our teams on the ground, often joining them in the early hours for the daily 6 a.m. safety meeting. These moments are truly energizing and remind me of the incredible commitment and dedication that our colleagues demonstrate every day. I'm tremendously proud of how our people live our purpose and values, driving safety, quality, operational excellence, and importantly, delivering legendary customer service. It's clear that these are more than just words. They are principles embodied in the work our teams do day in and day out across every location. I also want to extend a heartfelt thank you to our leaders and executive team for their outstanding leadership during this quarter. Working alongside such a committed and talented group of people is not just a source of pride for me, but also a privilege. As we review our results today, it's important to remember that the achievements we're sharing are the results of thousands of people pulling together, aligned by a shared purpose and values. I'm excited about where we're headed and the opportunities that lie ahead. At Greif, all the work we perform is focused on our purpose, creating packaging solutions for life's essentials. Wherever you are located today, listening to this, look around the room the adhesive that holds your desk together, the chemicals used to manufacture your smartphone, the foam in your seat cushion, the soles in your shoes, the orange juice you had for breakfast, the vitamin supplements you took this morning, and the lubricants in the car you drove to work. All of these are essential everyday products, and all of them at one time contained materials which were stored and shipped in dry packaging products. We know that. it was Greif products because Greif maintains leading positions in nearly all industrial packaging capabilities globally and by no accident. Those leading positions are the result of the deeply entrenched competitive advantage we have developed in our business. The most critical of which is our legendary customer service as outlined in our vision statements. Greif is in the middle of a significant evolution We are making excellent progress on our strategic missions by following our principles and all of this is engineered to create a flywheel of financial success through the right business system. Towards the end of today's prepared remarks, I will provide you with some more information on the operating model change we announced last December and are nearing completion on. Let's shift gears to near-term performance in fiscal Q3. Please turn to slide four. I'm pleased to report another solid quarter for Greif, where we continue to successfully manage through a variable and uncertain operating environments. All regions globally experience net growth in the quarter, despite choppiness on an individual and market basis. Although small on a year-on-year basis, we are encouraged that North America has now evidenced the east-to-west demand improvements we have talked about over the past quarters. There's still significant runway to reaching a normalized level of volumes, but recent trends have us cautiously optimistic as we have exited the trough on volumes. This trend also applies to our LATAM region. APAC improvement, while expected, was also encouraging. As we mentioned, Q2 was negatively impacted by a short but significant destocking after Chinese New Year, but is now on the path to recovery. EMEA, our largest GIP market, at approximately 45% of GIP sales, saw a third straight quarter of sequential improvements. This is particularly important as underlying macroeconomic data from calendar Q1 into calendar Q2 continue to be negative with PMI fluctuating around the 45 mark. In both Q2 and Q3, loops, chemicals, paints and coatings and markets are a source of strength. This is equally notable as our volume performance in the quarter outpaced many of the leading companies serving those end markets. This outperformance demonstrates our legendary customer service paired with the Greif Business System in action. We are maintaining close relationships with our customers and then reacting with decisive action when change occurs. With that, I will turn things over to Larry on slide five to walk through our third quarter results.

Larry? Thank you, Ole, and thank you all for joining our call. As Ole mentioned, we made progress on our operating model change in the quarter and our nearing completion. In the meantime, we continue to execute our strategy well and produce solid financial results under the circumstances. IPAC-CAM integration continues and synergy capture is in line with our business case expectations. We additionally made steps towards simplifying our portfolio through the divestiture of Delta Petroleum Company, which provided additional debt pay down towards our long-term debt leverage ratio range of two to two and a half times. Please note that while our current leverage is at 3.66, this does not include the impact of the Delta sale proceeds received on August 1st. The pro forma adjusted leverage including Delta proceeds would have been 3.59x. As for financial results, we finished the quarter at $194 million of adjusted EBITDA, $34 million of free cash flow, and adjusted earnings per share of $1.03. This EBITDA performance was driven by the volume performance that Ole outlined in his remarks and was in line with our expectations. Our free cash flow performance was also aligned to our expectations for Q3 as we had modest working capital use as we ramped up the business with the nascent volume recovery. Please turn to slide six to walk through GIP results. In Q3, GIP saw demand improvement in all regions, totaling nearly 5% on a global year-over-year basis. While this is encouraging, I remind you that on a global basis, the current volume shortfalls to 2022 levels are significant. GIP EBITDA margins remain strong on a sequential basis, supported by our continued mix shift into higher margin polymer-based products. On a year-over-year basis, EBITDA margins were down 200 basis points due to expected cost inflation primarily related to acquisitions, investments in our ongoing operating model change, and several one-time benefits in 23, which did not recur. Please turn to slide 7 for PPS results. Our paper business continued to experience the same conflicting dynamics as in Q2. continued improvement in volume and demand for our product, coupled with partially unrealized paper price increases. We firmly believe these are warranted based on our significant input cost inflation as well as improving demand. As a result, PPS margins continued to lag prior year. The paper solutions team is continuing to manage controllables well, including successful price increase implementation with our non-index-based customers in URB. However, the outside impact of the index-driven price-cost dynamic, which we still view to not be in sync with real market trends, is a headwind we have and will continue to aggressively work to offset. Please turn to slide 8 to discuss fiscal 2024 guidance. When considering our guidance update, we ultimately determined that maintaining our guidance range consistent with our Q3 call is appropriate. Relative to our Q2 guidance, we are anticipating slightly more favorable price costs due to better paper pricing and value-based pricing in GIP. In Q3, although volumes were positive in all regions year over year, the pace of that improvement was less than anticipated in Q2 and will present a slight headwind relative to prior guidance. We benefited from a variety of small-cost tailwinds in S&A relative to our prior guidance, However, some of that was offset by other items such as a slight headwind from the lack of contribution from Delta in Q4. What is important to remember when considering this Q4 guidance is the significance of certain tailwinds on the horizon. Our volumes, while improving, are still down significantly on a two-year stack. A return to 2022 volumes, which in fact were actually lower than 21, would be approximately $160 million of EBITDA. Adding the guidance midpoint of $700 million of EBITDA and $160 million of volume-related increase, along with the incremental fiscal 25 impact of recently recognized paper price increase, would return EBITDA to over $900 million. In the near term, we will continue to focus diligently on operational excellence and lean on our close customer relationships to ensure we maximize value capture when volume recovery begins in earnest. Please turn to slide 9 to discuss capital allocation. We remain committed to our disciplined approach to capital allocation, and this quarter continued to demonstrate that through our capital deployment actions. We have long stated that our two priority deployment objectives are funding safety and maintenance CapEx, which ensures continued cash generation, and funding our continually increasing dividend. Earlier this week, we announced another increase in our quarterly dividend. After those modest uses of cash, our next priority is growing our business aligned to our strategy. Earnings growth remains our core focus. However, sometimes it is wise to first shrink in order to enable that growth. We demonstrated that willingness this quarter with our sale of Delta. With that, I'll turn things back to Ole on slide 10 to provide you with a preview for our upcoming investor day.

Thank you, Larry. Greif has an investor day coming up on December 11th in Midtown New York. And one item I would like to preview with you today, or for you today, which will be important to our discussion in December, is our ongoing operating model change. We are currently in the process of organizing our operations and commercial functions by material solution as opposed to geography. While still ongoing, We now have better clarity on the likely material solution verticals which will encompass that organizational structure. Polymers, metals, paper, integrated products, and our land portfolio. Through organizing by material solutions, we plan to capture three distinct benefits, all of which we will discuss in detail at our upcoming investor day. It will enable us to accelerate market-aligned and value-driven growth through concentrating commercial and operations functions by subject matter expertise. That will enable us to better capitalize on our comprehensive suite of packaging solutions by optimizing pricing and account planning to drive higher margins. Secondly, by realigning functions, we will maximize the effectiveness of all our enabling functions. It will better align business results to individual functions and drive accountability at all levels of the organization. The cost efficiencies driven by that approach will also enhance margins. Lastly, it will allow us to provide a deeper level of transparency to our investor community and help us to provide more predictable returns. It will streamline our capital allocation prioritization and execution, allowing us to deploy cash for growth faster. It will also enhance our speed and ability to integrate acquisitions effectively and expand synergy capture on future deals. Additionally, we are currently assessing whether this upcoming change will result in a change to externally reported segments. We have frequently heard feedback from our investor community that our current external segmentation is not sufficiently detailed on a product basis to clearly show the growth and margin profile of these leading businesses. That assessment is still ongoing, but we are confident that the end result will provide the transparency our investors are looking for. And starting at our investor day, we plan to shift our cadence of talking about the business primarily by material solution and in markets with some regional color added. Please turn to slide 11. Part of the driving force behind our operating model change relates to shifting the mix of products in our portfolio, specifically our growth of polymers as a percentage of sales. We have been very clear in that focus that our growth priorities lie in resin, or more accurately, polymer-based packaging solutions. And we have acted decisively on that focus over the past 24 months. In 2015, our business mix was approximately 10% in polymer-based packaging solutions. As of our previous investor day in 2022, that mix had shifted to 15%. And now, In just two short years, that mix is now approximately 20%. We anticipate that shift to continue as we have significant runway for further growth in our polymer-based products. This quarter, the sale of Delta further accelerated that portfolio shift. While Delta is a solid business and we received great value for it, it's not core to drive growth priorities and core competitive advantages as it served much more cyclical end markets. For those reasons, we have parted ways and in doing so added balance sheet flexibility by paying down debt with the proceeds. Please turn to slide 12. To our investors, we sincerely hope you make the time to come to visit us at our Investor Day on December 11th. And as a reminder, please reach out to InvestorDay at Greif.com and I'll repeat that, InvestorDay at Greif.com with any questions or to request a registration. I hope you have enjoyed our presentation today and I would like to reaffirm to you that our vision to be the best performing customer service company in the world also extends to our financial customers. We are deeply committed to validating your investment in us through continued solid financial results and are proactively modernizing and involving our business to warrant continued and increased investments. One hour at earnings is not sufficient time to properly communicate the myriad of ways we are creating value at Rife and so I'm confident that after our half day together in December, you will depart with strong confirmation that Greif is primed for breakout success in both the near and long term through our proven execution on the build to last strategy. Thank you once more. And operator, will you please open the lines for Q&A?

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question will be coming from Matt Roberts of Raymond James. Your line is open.

Hi, good morning. Oli, Larry, and Bill, thank you all very much. Olli, I appreciate slides 10 and 11 and the prelude to investor day here. So, without stealing too much thunder from December, I think if you help me understand the margin contribution or benefit you've received as a result of that mixed shift and how incremental margins on the PolyBase products compared to the total portfolio average. Or maybe is there a longer-term margin target you think is achievable, either in GIP or that polymer-based business within GIP?

I certainly can. Maybe first just remind you of our M&A selection criteria. When we review target companies, one of the criteria is to make sure that the EBITDA margin is secretive to our current margins. That means that we're only looking at companies with a margin at or above 18%. We're also looking at companies with a free cash flow in excess of 50%. the segments we're looking at is primarily polymer, like resin-based segments in the premium end of the markets. And you will typically find those companies having up to mid-20 EBITDA margins. Obviously, we have a current business, so Even with the acquisitions we make now, whilst they're creative, it's not changing the margins for the whole enterprise. But in the long term, you will see a trend towards reaching the 80% margin.

Thanks, Will. I appreciate that and look forward to hearing more in December. As a follow-up, Larry, you noted in the presentation continued price-cost headwinds. albeit sequentially improving. And since last quarter, we've seen OCC come down slightly and $20 go through on URB that you did mention. So maybe relative to your expectations you gave in the last quarter, at current prices, where is the price-cost range tracking in your guide? And is there a certain price you need to see either in URB or container board to be at the midpoint there? Or would any changes here and out be more of a 2025 impact? Thank you all again for taking the questions.

Yeah, Matt, thanks. In the quarter, we ended up benefiting from a little better than we anticipated on the price increases. Due to the volatile recognition, typically through RISC, we had assumed only partial recognition of the outstanding price increases at that time. But then they actually recognized 40 in June for container board and 20 in August for URB. So the net impact of those provided a little bit of a tailwind for our revised four-year guidance. And we also had better-than-expected value-based pricing benefits in GIP. Our teams just did a great job on focusing on value over volume. The combined benefits of those were slightly better than expected. And raw material costs were a little bit of an upside as well. In relation to the paper pricing guidance, you know, we still believe there should be more to come. I don't anticipate anything in the remainder of our fiscal year, but certainly we're optimistic that something should be recognized in 25, given the inflationary cost in the entire industry and improving demand trends, particularly in container board. Volumes, on the other hand, actually were strong. while better, were slightly below what we had expected. You know, we talked in the last quarter that we had seen some lift in demand, and we're hopeful that that would continue to improve. It was more mixed than we expected, and for that reason, there's sort of a little bit of a downside relative to where our Q2 guide was. And we also had some miscellaneous cost bucket improvements as we focused on improving things. But that's a little bit offset by the takeout of the fourth quarter even that we would have had from Delta had we not sold it. When you put all that together, it just led us to where our guidance range didn't change on a haul-over basis. As far as things beyond 24, we're not there yet. Things are changing so rapidly in the environment. We'll see what we get from the Fed in September, which I think could be a big impetus for us across our platform. We'll be talking about guidance, obviously, at our next call. Also, though, we've had the startup of our Dallas Sheep Feeder. But we have had no net bottom line benefit to that yet as we go through our startup costs, but we're very excited about what that will be contributing for us in 2025 as well.

Appreciate all the time. Thank you guys again.

Thank you.

And one moment for our next question. Our next question will be coming from Ghanshyam Punjabi of Baird. Your line is open.

Yeah, thank you, operator. Good morning, everybody. You know, I guess going back to slide six where you're talking about the near-term outlook within GIP and, you know, customer sentiment and so on and so forth, can you just give us a bit more color as it relates to, you know, your direct conversations with customers in context of the environment that we have today? And then just in terms of, you know, your volumes that are starting to plateau at sort of a lower for longer, you know, volume dynamic basically, maybe touch on competitive activity. Are you seeing anything different than the usual competition that you've seen in the industry over time?

First of all, I mean, market competition has really not eased. Despite, you know, you see some positive volume trends, the number of tenders or IFQs remains very high. And we see market participants or some market participants are pricing at what we believe to be loss making levels to maintain their volume. We continue our strict adherence to our value or volume approach. and we simply focus on maintaining trusted relationships with our customers and the commitment of our teams to operational excellence and our value or volume philosophy is a large part of our continued margin strength in GIP over the past quarters despite these competitive pressures. In the past, we have seen customers return to us after chasing low competitive pricing And our superior quality and our legendary customer service is really, in our view, unable to be matched. So over time, those customers come back and then we win in the long term. In terms of a bit more color, in our Q2, the strongest volume was coming from loops, bulk chemicals, and patent coatings. As you may have noticed, in those customers' own earnings calls, they seem to be less bullish than before in these end markets. And the end markets we are investing in have likewise been mixed, food and bed have been solid, but ag chem is still stagnating after the destock that occurred earlier in the year. You may have read an article, a recent article in the Wall Street Journal about the ag sector in North America. where this year the farmers will have a bumper crop, but they're going to lose money. And the article goes into what that means to them in terms of investing in fertilizer and so on, and even machinery. But overall, I feel that our teams have done a really exceptional job of engaging with our customers and keeping close tabs on shifting demand patterns and it shows in our volume performance. And if you compare our volumes to some of these significant players in the end markets we serve, like loops, bulk chemicals and so on, we have outperformed due to our quick reaction time. But that doesn't mean we're resting on our laurels. We're going to keep that focus up and overall demand signals are very mixed still. So we just remain deeply connected with our customers. as a critical supply chain partner and expect that will continue to drive better than industry volume performance.

Okay, thanks, Olli, very comprehensive. And then on the reorganization by substrate versus geography, is this something that the customers themselves have been pushing for or is it just a natural evolution based on, you know, all the acquisitions you've done and the scale of the company at this point? And just separately, what percentage of your sales base in GIP goes to multinationals that want a cross-border supplier?

Well, first of all, the changes we are anticipating to make, number one, yes, it's really to serve our customers better. So if you think of, you know, GIP and PPS, In GIP, we have all types of materials that we're making, whether it's polymer-based, steel, fiber drums, and so on. So, in a way, our teams are kind of the jacks of all trades. And what we want to do in our drive to be even better is to really focus on one material solution. So, blow molding a jerry can is obviously different from making a steel drum. So, separating jerry cans out in a separate SBU under a separate SBU management means that all they need to think about is to be the best in the world in making jerry cans. And that will help our customers with even better quality. And so we're doing that for each of our material solutions. And then we've extracted the commercial organization out of all those. So our commercial organization becomes an enabling function, so to speak, under a chief commercial officer. That will drive up sales and cross sales. As in the past, a salesperson would have visited a customer in the morning and another salesperson from Greif comes to sell another product in the afternoon. And by combining sales this way, we will just be much more effective in that and it'll also drive margins and we will be able to serve our customers better and then lastly when we do a M&A we will be even more effective in integrating you know these companies into our structure so overall the structure has been designed or is being designed for growth okay perfect thank you and one moment for our next question

Our next question will be coming from Mike Roxland of Truist Securities. Your line is open.

Thank you, Oli, Larry, and Bill for taking my questions. I just wanted to follow up quickly on your response to the last question. On the portfolio transformation, does that require any additional headcount given the Salesforce split?

You mean in our evolution to modernize the organization?

Exactly, yeah.

But it's not designed to reduce headcount. That has never been... He said it has to be increased. No, it won't be increased. No, it won't increase it. We've had some questions whether we will be taking out headcount, and it's not designed to take our headcount, but we do believe we will be able to operate much more effectively. And as we are adding... volume or growing our volume, we will be able to do that without adding further headcount to the organization. So, in effect, we will be operating much more effectively. But we certainly won't be adding.

Gotcha. Because I was just wondering, as your sales force, it sounds like your sales force is now going to become specialists in targeted products. So, I'm sorry, go ahead.

The sales force will be more generalist and they will turn more from farmers to hunters. And then we have created a very strong product management function that will be more of a support to sales. So rather than our sales teams acting as product managers, we will have a dedicated central product management function by material solution serving the sales teams, but also our customers.

Got it. No, it's very clear. Thank you, Oli. In terms of global industrial packaging, what do you attribute your outperformance relative to the market to? Obviously, you showed sequential improvement in anemia despite PMIs remaining depressed. So I'm wondering if there's something that you're doing differently, some type of restocking. How are you able to outperform despite the broader market still being so much challenged?

Well, I mean, I gave a lot of kudos to our teams and, you know, that's one of them. But it's really our long-term focus on customer service that's driving that. You know, imagine you probably had the experience of dealing with a vendor or a store where you got a really bad service and you go home, you tell your family, I'm never going to go back there again. And that word spreads. And conversely, you'll probably also try to shop somewhere or deal with a vendor that just provided you that exceptional level of customer service. And then you tell people that as well, and then you prefer that over, and you're even prepared to pay a bit more for that service. And the same thing goes with our customers. So we have for a very long time focused on providing legendary customer service, and we get better and better and better. And in that respect, I mean, we're chasing perfection. knowing that we will never catch it but in the process we have become best in class and that is really why we can deliver solid results in this current environment got it of course no i'm sorry please go on I was just going to add, on top of that, providing top quality products, as you would expect.

Got it. And just one final question before turning it over. In terms of PPS and non-indexed customers, how much of your business is non-indexed? And are you fully implementing announced price increases with those non-indexed customers?

I'll let Larry answer. Yeah, so when we look at that, it's really about 35% of our customers in the URB space. And so just driving, yeah, we've had great success.

I can't tell you it's 100% of that 35%, but it's pretty close.

Got it. Thank you guys very much, and good luck in the final quarter. Thanks, Mike.

Thank you.

And our next question will be coming from Gabe Haiti of Wells Fargo. Your line is open.

Olli, Larry, Bill, good morning. Good morning. I wanted to, Larry, you gave us an inch, so I'm going for the mile. If you can help us in the fiscal 25 on some of the known items that you kind of called out, and I'm thinking about Delta Petroleum for sure. You said a little bit of a headwind in the fourth quarter. Is that maybe a $15 to $20 million annualized EBITDA number that we should be thinking about, you know, for the assets sold? And then kind of gross price flowing through based on price increases that have already been reflected in the indices. And then I guess lastly, I think there were some higher compensation items called out in the press release on Is that kind of getting back to normal, which I guess is a good thing? But any other kind of one-time items in the next year that we should be thinking about?

Yeah. On Delta, no, that number's high. It was about – our $90 million was about eight and a half times, you know, after even dealing with stranded costs and that kind of stuff. So more in – well, you can do the math on that. um yeah now that that business vastly during the year so the fourth quarter actually was going to be a little higher than that so it would be approaching 4 million in that quarter but um for a full year you know eight and a half times on 90 million so um you know relative to the pricing um element um you know we we obviously had the 20 increase on urb that ends up being um about a million that will hit in the fourth quarter this year because it will flow through mostly in October only. And on that 22, at a full year basis, you know, for, you know, $10 on URB, you know, you basically have about, you know, 650 million, I'm sorry, what's that number, Dan? 650,000 a month. Yeah, 650,000 a month on the URB. And the incremental price increase that we had on the container board, sorry, I'm struggling through my notes here for a minute here. Matt, what's the number on container board? for $10. Yeah, $750 per $10, so on those elements.

And that was recognized in June, so it'll be fully beneficial to Q4.

Right, yeah. Does that address that question?

It does. I mean, the other thing I was thinking about was I don't think that I heard economic downtime mentioned in the prepared remarks or in the slides. Just curious kind of where you guys are running in the system today.

Yeah, we've been running full out in our container board business. We've had some economic downtime in our URB space. Do you have that number, Bill? There's nothing significant from it.

Yeah, I know it's minor, so. Any economic and any paper grade, but near optimal levels from a backlog perspective and container border. Yeah.

Okay. And one last one, just on the M&A front, obviously you guys have been active there. You called out kind of being 3.5 times levered on a pro forma basis. Are there still opportunities out there for given kind of where we are in the interest rate cycle, or do you feel like it might get more competitive again if the Fed in fact does cut?

No, we still have a lot of opportunities. We have a very robust pipeline. We are engaged with a lot of companies and owners. We continue to do that. We don't always decide the timing, so we have to continue that. And if an opportunity comes along, although the timing may not be ideal, we have the capability to do it. But I'll tell you that our focus right now is to pay down debts so that we get back to the two and two and a half leverage ratio level.

Understood. Thank you. Thank you.

One moment for our next question. Our next question will be coming from Brian Butler at Staple. Your line is open.

Thank you. Good morning. Thanks for taking the questions. Hi, Brian.

Just maybe on the first one, when you talk about that $160 million kind of in a more normalized volume environment, you know, What has to happen for that? I mean, are we there at current kind of volumes right now? Get those just kind of sustained through the back, you know, or through 2025? Or do we really need to see some step up in the macro recovery to kind of get back to kind of the normalized 2022 levels?

Yeah, we need a step change. Just to give you a perspective on, you know, where we were and is volumes – versus Q3 22. If you look back, let me just give you a number, just for example. For total GIT, if I go to Q3 22 to 21, was down 4.3%. The following year, it was down another 10.7. We've only regained 4% of that. So pretty significant growth. drop-off scale from where we were. If I go to, you know, IBCs, they were, because of acquisitions and stuff, we were up 9.5 and Q3 22 over 21, but we were down 13.7% 22. IBCs, because of our acquisitions, have come back. That's pretty strong. But if I go to paper, in our total mill volumes, 22 to 21 was down 2.6. Next year, it was down 16.3%. and we've only recovered to 7.9% up. So we still have a long way to go to get back to the volume levels that we were at. And so, yeah, it is more of a macro issue, Brian, than it is just some marginal change. So if I look at PPS as a whole, for us to get, if we got back to normal volume levels, and this is not yet including the impact of the price changes that have been recognized. This is just sort of average value add for the year. We pick up another $56 million of EBITDA in our BPS business. And in our old-line GIP business, it's a $90 million list. And then you go into the acquisitions that we've made, and if you get back to normalized volumes for them, you end up picking up another $21 million. So it's a big macro piece against the entire environment.

Brian, if I can just add a little bit of color to the 160 million as well. So as Larry alluded to, that's not one single factor. You have to consider that much of current volume dynamics is driven by macroeconomic factors. So while we proved in Q3 that we can outpace the macro on volume, it is still the primary bottleneck to truly rebounding demand. And one major factor in that equation is the current interest rate situation. In previous instances, interest rate costs have been shown to drive production, specifically pent-up housing demands, both for new builds and existing housing sales. And that would be a major volume driver for us. As you know, when you move house or buy a new house, You do more than just buy the house. You paint the walls in the old house for it to sell better. You may buy new carpets, appliances, and hundreds of other items for when that happens. And all of those things, they drive industrial production and demand for our products. And then another component as an example would be air. I just talked about that earlier. We are experiencing short-term softness. Some of it is interest rate playing in action, too. And as that softener debates, again, you will see that end segment to improve. So there's a lot of factors involved in returning to the 160.

Okay. That's helpful. And second question. When you think of the operating model evolution that you're kind of in the process for, what's the timeline on how long that takes to kind of implement? And is there a, you know, during that time, is there a short-term impact either on slower sales or higher costs as that gets pushed through?

On sales, no. On costs, obviously, we're doing this in conjunction with changing our fiscal year, as you know. And there are some costs involved in that, but it's not material.

Yeah. We had disclosed, Brian, that we were going to end up incurring, you know, about $6 to $7 million related to just the cost of going through this change.

Okay. And is that change kind of completed in fiscal 24 here, or does that really roll into 25 as well?

We'll be rolling – we're – evolving into this, and we will roll out the details in December, but we will be operating in this model beginning November 1st.

Okay, and then maybe one last one. On your shift towards more polymers versus kind of the other segments, how do you view kind of the market organic growth for the polymers and that kind of specialty piece that you're moving into versus the other segments? You know, what does that organic growth look like?

First of all, why are we doing this? Well, we are growing in polymer-based products because the margin profile is much, much higher and the cyclicality of those products is much, much lower. So we want to be a higher margin company that's a lot less cyclical. On the organic side, I mean, next week, I'm traveling to Malaysia to open a new IBC plant, which is polymer. We are, you know, adding lines all over the world all the time. We opened earlier this year, we opened another IBC plant in Turkey. So, yes, Brian, we're also growing organically.

Okay. Thank you for taking the questions. Okay.

Again, as a reminder, to ask the question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. And our next question will be coming from George Stappos of Bank of America Securities. Your line is open, George.

Hi, everyone. Good morning.

Hope you're doing well. Hey. So we've touched on this a couple different ways on the call regarding Europe. But, Oli, as you think about it, is there a horizon where you won't be able to outperform Europe in spite of your model, in spite of the legendary customer service? Or do you think the next couple of quarters, for this reason, you should be able to outperform in Europe in spite of what's been sluggish conditions? I think you could put maybe some quantification on that somewhat sort of qualitative question. Secondly, can you talk about what your exit trends were by big business into the fourth quarter? I'm particularly interested in what you're seeing in core choice in terms of the marginal trends there. And I'll leave it there. I might have one follow-up.

Well, thanks for that, George. On Europe, first of all, the answer to the question is yes, I believe we can still outperform. And why do I believe that well if we look back and I have to go back to our philosophy of value over volume we have said no to quite a lot of business in the past and We can see now that you know after a certain period that business is trickling back to us So that's that's one reason for why we will continue to outperform another one is we are really focused on growth in segments where we have not historically been very strong. One is food and pharma, and we have teams really working hard on getting into those segments because the margins are higher, it's much more sticky, and it's much less cyclical as well. So with that, those combinations, I believe that we will continue to see solid performance come out of Europe. And we have added more capacity as well, by the way, organically. Sequentially on core choice, core choice was up.

All the businesses, but yeah, lean with core choice. Sorry about that.

I was just answering your second question. So sequentially, core choice was also up nearly 10% as container-bought demand continued to improve, which was slightly better than we expected in our Q2 guidance. And I would remind you and our other investors of our niche role in North America, container bought as a champion of the independence, which gives us earlier visibility to demand cycles than our competition. As we have a view of the full markets, we are positioned well for this recovery. Champion of the independent is a competitive advantage to us, so we are skilled at handling complexity. We can produce any fluke, any size run, and any liner board combination with speed and probability. So those are some of the reasons for why we see that sort of growth in container board oil.

And just in general, and what were the other exit trends that you were seeing in the quarter?

I can't really talk about quarter four, but the exiting quarter three, it's still choppy. I would say it's very choppy. It's a little bit like walking in sand. You take two steps forward and then you slide half a step backwards. So we have months where we see, yeah, it's all coming. And then the following months, we see a dive again. And then the next month it goes up again. The overall trend is positive across the segment.

The one thing, August is always tough because it's vacation holiday month in Europe. It always gets choppy and it also goes a lot to harvest seasons in the south of Europe. They're substantially the same as what we saw exiting in July.

Thank you. Last question following, I'll turn it over, you know, back to container board core choice and the business overall. To the extent that you have a view and your customers could offer one that you'd share on this conference call, you know, volumes for the calendar second quarter in cargated markets were okay, not great, you know, flat, up a little bit, down a little bit, depending on, you know, what adjustment you wanted to make. but all very easy comparisons. What are your customers saying? What are you seeing through your businesses in terms of why we're seeing that market trend, recognizing you're doing better? And what kind of holiday, calendar, fourth quarter season are we setting up for in the corrugated markets, given what you're seeing? Thank you, guys, and good luck the rest of the year.

Thank you. Yeah, I mean, you know, George, we're hearing the same thing that we've been expressing. I mean, it's just a mixed bag out there. I mean, if you read, like, the Dow CEO's comments in their earnings call, it's like, you know, he's talking very positively. If interest rates drop and home sales kick off, we feel the same way. I mean, you know, and we see others I think Henkel was very positive. You had other BASF not. In the paper business, it's the same kind of mixed bag as what we're hearing from our people on the street. It's one week it's hot, the next week it's not. That's why we termed it as mixed.

I think a rate drop will obviously affect this because the average person looks at their credit card debts and their payments and it's linked to... to the interest rates, and if they go down, they get a little bit more money between their hands. They shop more on Amazon, and, you know, it helps the industry. So we don't have a crystal ball, Josh. I'm trying to say it.

Well, you're closer to it than we are, so we appreciate the color as always.

Thank you, guys. Thank you, George.

And one moment for our next question. Our next question is a follow-up from Gabe Haiti of Wells Fargo. Your line is open.

Thank you. Real quick, when we're talking about, I guess, the different end markets, can you remind us, roughly speaking, in your North American GIP business, how much is directionally tied to housing?

It's difficult to give you a number on that. It really is, because it Take chemicals. Bulk chemicals is one of our largest ones. Some goes into insulation. Some goes into the soles in your shoes. Some goes into the fridge you buy. It's just difficult to sort of make that out.

We don't have any good information on that at all, Gabe.

No worries. Thank you.

And I would now like to turn the conference back to Oli for closing remarks.

Thank you, Anst. First of all, a big thank you for all the questions and your continued interest and drive. We really appreciate that. And we look forward to reporting our Q4 2024 earnings to you in early December and subsequently also seeing you at our Investor Day on December 11th in Midtown New York. Have a wonderful day, everyone.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Music. Thank you. you you Good day. Thank you for standing by. Welcome to the Grice Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Donofrio, Vice President of Investor Relations and Corporate Development.

Thank you, and good day, everyone. Welcome to Grice Fiscal Third Quarter 2024 Earnings Conference Call. During the call today, our Chief Executive Officer, Oli Rosgaard, will provide you an update on current business trends, as well as the latest updates on our ongoing operating model change, which will be a focal point of our upcoming Investor Day on December 11th. Our Chief Financial Officer, Larry Hilsheimer, will provide an overview of our third quarter financial results and our fiscal four-year guidance. In accordance with regulation fair disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material non-public information with you on an individual basis. Please turn to slide two. During today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. I'll now turn the presentation over to Ole on slide three. Thank you, Bill. Hello, and thank you for joining us.

Over the past quarter, I've had the privilege of visiting many of our more than 250 plants around the world. Each week, I make it a priority to spend time with our teams on the ground, often joining them in the early hours for the daily 6 a.m. safety meeting. These moments are truly energizing and remind me of the incredible commitment and dedication that our colleagues demonstrate every day. I'm tremendously proud of how our people live our purpose and values, driving safety, quality, operational excellence, and importantly, delivering legendary customer service. It's clear that these are more than just words. They are principles embodied in the work our teams do day in and day out across every location. I also want to extend a heartfelt thank you to our leaders and executive team for their outstanding leadership during this quarter. Working alongside such a committed and talented group of people is not just a source of pride for me, but also a privilege. As we review our results today, it's important to remember that the achievements we're sharing are the results of thousands of people pulling together, aligned by a shared purpose and values. I'm excited about where we're headed and the opportunities that lie ahead. At Greif, all the work we perform is focused on our purpose, creating packaging solutions for life's essentials. Wherever you are located today, listening to this, look around the room the adhesive that holds your desk together, the chemicals used to manufacture your smartphone, the foam in your seat cushion, the soles in your shoes, the orange juice you had for breakfast, the vitamin supplements you took this morning, and the lubricants in the car you drove to work. All of these are essential everyday products, and all of them at one time contained materials which were stored and shipped in dry packaging products. We know that. it was Greif products because Greif maintains leading positions in nearly all industrial packaging capabilities globally and by no accident. Those leading positions are the result of the deeply entrenched competitive advantage we have developed in our business, the most critical of which is our legendary customer service as outlined in our vision statements. Greif is in the middle of a significant evolution We are making excellent progress on our strategic missions by following our principles and all of this is engineered to create a flywheel of financial success through the Greif business system. Towards the end of today's prepared remarks, I will provide you with some more information on the operating model change we announced last December and are nearing completion on. Let's shift gears to near-term performance in fiscal Q3. Please turn to slide four. I'm pleased to report another solid quarter of a drive where we continue to successfully manage through a variable and uncertain operating environments. All regions globally experience net growth in the quarter despite choppiness on an individual and market basis. Although small on a year-on-year basis, we are encouraged that North America has now evidenced the east-to-west demand improvements we have talked about over the past quarters. There's still significant runway to reaching a normalized level of volumes, but recent trends have us cautiously optimistic as we have exited the trough on volumes. This trend also applies to our LATAM region. APAC improvement, while expected, was also encouraging. As we mentioned, Q2 was negatively impacted by a short but significant destocking after Chinese New Year, but is now on the path to recovery. EMEA, our largest GIP market, at approximately 45% of GIP sales, saw a third straight quarter of sequential improvements. This is particularly important as underlying macroeconomic data from calendar Q1 into calendar Q2 continue to be negative with PMI fluctuating around the 45 mark. In both Q2 and Q3, loops, chemicals, paints, and coatings and markets are a source of strength. This is equally notable as our volume performance in the quarter outpaced many of the leading companies serving those end markets. This outperformance demonstrates our legendary customer service paired with the Greif Business System in action. We are maintaining close relationships with our customers and then reacting with decisive action when change occurs. With that, I will turn things over to Larry on slide five to walk through our third quarter results.

Larry? Thank you, Ole, and thank you all for joining our call. As Ole mentioned, we made progress on our operating model change in the quarter and our nearing completion. In the meantime, we continue to execute our strategy well and produce solid financial results under the circumstances. IPAC-CAM integration continues, and synergy capture is in line with our business case expectations. We additionally made steps towards simplifying our portfolio through the divestiture of Delta Petroleum Company, which provided additional debt pay down towards our long-term debt leverage ratio range of 2 to 2.5 times. Please note that while our current leverage is at 3.66, this does not include the impact of the Delta sale proceeds received on August 1st. The pro forma adjusted leverage including Delta proceeds would have been 3.59x. As for financial results, we finished the quarter at $194 million of adjusted EBITDA, $34 million of free cash flow, and adjusted earnings per share of $1.03. This EBITDA performance was driven by the volume performance that Ole outlined in his remarks and was in line with our expectations. Our free cash flow performance was also aligned to our expectations for Q3 as we had modest working capital use as we ramped up the business with the nascent volume recovery. Please turn to slide six to walk through GIP results. In Q3, GIP saw demand improvement in all regions, totaling nearly 5% on a global year-over-year basis. While this is encouraging, I remind you that on a global basis, the current volume shortfalls to 2022 levels are significant. GIP EBITDA margins remain strong on a sequential basis, supported by our continued mix shift into higher margin polymer-based products. On a year-over-year basis, EBITDA margins were down 200 basis points due to expected cost inflation primarily related to acquisitions, investments in our ongoing operating model change, and several one-time benefits in 23, which did not recur. Please turn to slide 7 for PPS results. Our paper business continued to experience the same conflicting dynamics as in Q2. continued improvement in volume and demand for our product, coupled with partially unrealized paper price increases. We firmly believe these are warranted based on our significant input cost inflation as well as improving demand. As a result, PPS margins continued to lag prior year. The paper solutions team is continuing to manage controllables well, including successful price increase implementation with our non-index-based customers in URB. However, the outsized impact of the index-driven price-cost dynamic, which we still view to not be in sync with real market trends, is a headwind we have and will continue to aggressively work to offset. Please turn to slide 8 to discuss fiscal 2024 guidance. When considering our guidance update, we ultimately determined that maintaining our guidance range consistent with our Q3 call is appropriate. Relative to our Q2 guidance, we are anticipating slightly more favorable price costs due to better paper pricing and value-based pricing in GIP. In Q3, although volumes were positive in all regions year over year, the pace of that improvement was less than anticipated in Q2 and will present a slight headwind relative to prior guidance. We benefited from a variety of small-cost tailwinds in S&A relative to our prior guidance. However, some of that was offset by other items, such as a slight headwind from the lack of contribution from Delta in Q4. What is important to remember when considering this Q4 guidance is the significance of certain tailwinds on the horizon. Our volumes, while improving, are still down significantly on a two-year stack. A return to 2022 volumes, which in fact were actually lower than 21, would be approximately $160 million of EBITDA. Adding the guidance midpoint of $700 million of EBITDA and $160 million of volume-related increase, along with the incremental fiscal 25 impact of recently recognized paper price increase, would return EBITDA to over $900 million. In the near term, we will continue to focus diligently on operational excellence and lean on our close customer relationships to ensure we maximize value capture when volume recovery begins in earnest. Please turn to slide 9 to discuss capital allocation. We remain committed to our disciplined approach to capital allocation, and this quarter continued to demonstrate that through our capital deployment actions. We have long stated that our two priority deployment objectives are funding safety and maintenance CapEx, which ensures continued cash generation, and funding our continually increasing dividend. Earlier this week, we announced another increase in our quarterly dividend. After those modest uses of cash, our next priority is growing our business aligned to our strategy. Earnings growth remains our core focus. However, sometimes it is wise to first shrink in order to enable that growth. We demonstrated that willingness this quarter with our sale of Delta. With that, I'll turn things back to Ole on slide 10 to provide you with a preview for our upcoming investor day.

Thank you, Larry. Greif has an investor day coming up on December 11th in Midtown New York. And one item I would like to preview with you today, or for you today, which will be important to our discussion in December, is our ongoing operating model change. We are currently in the process of organizing our operations and commercial functions by material solution as opposed to geography. While still ongoing, We now have better clarity on the likely material solution verticals which will encompass that organizational structure. Polymers, metals, paper, integrated products and our land portfolio. Through organizing by material solutions, we plan to capture three distinct benefits, all of which we will discuss in detail at our upcoming investor day. It will enable us to accelerate market-aligned and value-driven growth through concentrating commercial and operations functions by subject matter expertise. That will enable us to better capitalize on our comprehensive suite of packaging solutions by optimizing pricing and account planning to drive higher margins. Secondly, by realigning functions, we will maximize the effectiveness of all our enabling functions. It will better align business results to individual functions and drive accountability at all levels of the organization. The cost efficiencies driven by that approach will also enhance margins. Lastly, it will allow us to provide a deeper level of transparency to our investor community and help us to provide more predictable returns. It will streamline our capital allocation prioritization and execution, allowing us to deploy cash for growth faster. It will also enhance our speed and ability to integrate acquisitions effectively and expand synergy capture on future deals. Additionally, we are currently assessing whether this upcoming change will result in a change to externally reported segments. We have frequently heard feedback from our investor community that our current external segmentation is not sufficiently detailed on a product basis to clearly show the growth and margin profile of these leading businesses. That assessment is still ongoing, but we are confident that the end result will provide the transparency our investors are looking for. And starting at our investor day, we plan to shift our cadence of talking about the business primarily by material solution and in markets with some regional color added. Please turn to slide 11. Part of the driving force behind our operating model change relates to shifting the mix of products in our portfolio, specifically our growth of polymers as a percentage of sales. We have been very clear in that focus that our growth priorities lie in resin, or more accurately, polymer-based packaging solutions. And we have acted decisively on that focus over the past 24 months. In 2015, our business mix was approximately 10% in polymer-based packaging solutions. As of our previous investor day in 2022, that mix had shifted to 15%. And now, In just two short years, that mix is now approximately 20%. We anticipate that shift to continue as we have significant runway for further growth in our polymer-based products. This quarter, the sale of Delta further accelerated that portfolio shift. While Delta is a solid business and we received great value for it, it's not core to Greif's growth priorities and core competitive advantages, as it served much more cyclical end markets. For those reasons, we have parted ways, and in doing so, added balance sheet flexibility by paying down debt with the proceeds. Please turn to slide 12. To our investors, we sincerely hope you make the time to come to visit us at our investor day on December 11th. And as a reminder, please reach out to InvestorDay at Greif.com and I'll repeat that, InvestorDay at Greif.com with any questions or to request a registration. I hope you have enjoyed our presentation today and I would like to reaffirm to you that our vision to be the best performing customer service company in the world also extends to our financial customers. We are deeply committed to validating your investment in us through continued solid financial results and are proactively modernizing and involving our business to warrant continued and increased investments. One hour at earnings is not sufficient time to properly communicate the myriad of ways we are creating value at Rife. And so I'm confident that after our half day together, In December, you will depart with strong confirmation that Greif is primed for breakout success in both the near and long term through our proven execution on the build to last strategy. Thank you once more. And operator, will you please open the lines for Q&A?

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question will be coming from Matt Roberts of Raymond James. Your line is open.

Hi, good morning, Ole, Larry, and Bill. Thank you all very much. Ole, I appreciate the slides 10 and 11 and the prelude to investor day here. So without stealing too much thunder from December, Maybe if you help me understand the margin contribution or benefit you've received as a result of that mixed shift and how incremental margins on the poly-based products compared to the total portfolio average, or maybe is there a longer-term margin target you think is achievable either in GIP or that poly-based business within GIP?

I certainly can. Maybe first just remind you of our – M&A selection criteria. So when we review target companies, one of the criteria is to make sure that the EBITDA margin is secretive to our current margins. And that means that we're only looking at companies with a margin at or above 18%. And we're also looking at companies with a free cash flow in excess of 50%. And the segments we're looking at is primarily polymer, like resin-based segments in the premium end of the markets. And you will typically find those companies having up to mid-20 EBITDA margins. Obviously, we have a current business. Even with the acquisitions we make now, once they're creative, it's not changing the margins for the whole enterprise. But in the long term, you will see a trend towards reaching the 80% margin.

Thanks, Will. I appreciate that and look forward to hearing more in December. As a follow-up, Larry, you noted in the presentation continued price-cost headwinds. albeit sequentially improving. And since last quarter, we've seen OCC come down slightly and $20 go through on URB that you did mention. So maybe relative to your expectations you gave in the last quarter, at current prices, where is the price-cost range tracking in your guide? And is there a certain price you need to see either in URB or container board to be at the midpoint there? Or would any changes here and out be more of a 2025 impact? Thank you all again for taking the questions.

Yeah, you know, Matt, thanks. In the quarter, we ended up benefiting from a little better than we anticipated on the price increases. Due to the volatile recognition, typically through RISC, we had assumed only partial recognition of the outstanding price increases at that time. But then they actually recognized 40 in June for container board and 20 in August for URB. So the net impact of those provided a little bit of a tailwind for our revised four-year guidance. And we also had better than expected value-based pricing benefits in GIP. Our teams just did a great job on focusing on value over volume. The combined benefits of those were slightly better than expected. And raw material costs were a little bit of an upside as well. In relation to the paper pricing guidance, you know, we still believe there should be more to come. I don't anticipate anything in the remainder of our fiscal year, but certainly we're optimistic that something should be recognized in 25, given the inflationary cost in the entire industry and improving demand trends, particularly in container board. Volumes, on the other hand, actually were strong. while better, were slightly below what we had expected. You know, we talked in the last quarter that we had seen some lift in demand, and we're hopeful that that would continue to improve. It was more mixed than we expected, and for that reason, there's sort of a little bit of a downside relative to where our Q2 guide was. And we also had some miscellaneous cost bucket improvements as we focused on improving things, but that's a little bit offset by the takeout of the fourth quarter even that we would have had from Delta had we not sold it. When you put all that together, it just led us to where our guidance range didn't change on a haul-over basis. As far as things beyond 24, we're not there yet. Things are changing so rapidly in the environment. We'll see what we get from the Fed in September, which I think could be a big impetus for us across our platform. We'll be talking about guidance, obviously, at our next call. Also, though, we've had the startup of our Dallas Sheep Feeder. But we have had no net bottom line benefit to that yet as we go through our startup costs, but we're very excited about what that will be contributing for us in 2025 as well. Appreciate all the time.

Thank you guys again.

Thank you.

And one moment for our next question. Our next question will be coming from Ghanshyam Punjabi of Baird. Your line is open.

Yeah, thank you, operator. Good morning, everybody. You know, I guess going back to slide six where you're talking about the near-term outlook within GIP and, you know, customer sentiment and so on and so forth, can you just give us a bit more color as it relates to, you know, your direct conversations with customers in context of the environment that we have today? And then just in terms of, you know, your volumes that are starting to plateau at sort of a lower for longer, you know, volume dynamic basically, maybe touch on competitive activity. Are you seeing anything different than the usual competition that you've seen in the industry over time?

First of all, I mean, market competition has really not eased. Despite, you know, you see some positive volume trends, the number of tenders or IFQs remains very high. And we see market participants or some market participants are pricing at what we believe to be loss making levels to maintain their volume. We continue our strict adherence to our value or volume approach. and we simply focus on maintaining trusted relationships with our customers and the commitment of our teams to operational excellence and our value or volume philosophy is a large part of our continued margin strength in GIP over the past quarters despite these competitive pressures. In the past, we have seen customers return to us after chasing low competitive pricing Our superior quality and our legendary customer service is really, in our view, unable to be matched. So over time, those customers come back and then we win in the long term. In terms of a bit more color, in our Q2, the strongest volume was coming from loops, bulk chemicals, and patent coatings. As you may have noticed, in those customers' own earnings calls, they seem to be less bullish than before in these end markets. And the end markets we are investing in have likewise been mixed, food and bed have been solid, but ag chem is still stagnating after the destock that occurred earlier in the year. You may have read an article, a recent article in the Wall Street Journal about the ag sector in North America. where this year the farmers will have a bumper crop, but they're going to lose money. And the article goes into what that means to them in terms of investing and fertilizer and so on, and even machinery. But overall, I feel that our teams have done a really exceptional job of engaging with our customers and keeping close tabs on shifting demand patterns and it shows in our volume performance and if you compare our volumes to some of these significant players in the end markets we serve like loops ball chemicals and so on we have outperformed due to our quick reaction time but that doesn't mean we're resting on our laurels now we're going to keep that focus up and overall demand signals are very mixed still so we just remain deeply connected with our customers as a critical supply chain partner and expect that will continue to drive better than industry volume performance.

Okay, thanks, Olly. Very comprehensive. And then on the reorganization by substrate versus geography, is this something that the customers themselves have been pushing for or is it just a natural evolution based on all the acquisitions you've done and the scale of the company at this point? And just separately, what percentage of your sales base in GIP goes to multinationals that want a cross-border supplier?

Well, first of all, the changes we are anticipating to make, number one, yes, it's really to serve our customers better. So if you think of, you know, GIP and PPS, In GIP, we have all types of materials that we're making, whether it's polymer base, steel, fiber drums, and so on. So, in a way, our teams are kind of the jacks of all trades. And what we want to do in our drive to be even better is to really focus on one material solution. So, blow molding a jerry can is obviously different from making a steel drum. So, separating jerry cans out in a separate SBU under a separate SBU management means that all they need to think about is to be the best in the world in making jerry cans. And that will help our customers with even better quality. And so we're doing that for each of our material solutions. And then we've extracted the commercial organization out of all those. So our commercial organization becomes an enabling function, so to speak, under a chief commercial officer. That will drive up sales and cross sales. As in the past, a salesperson would have visited a customer in the morning and another salesperson from Greif comes to sell another product in the afternoon. And by combining sales this way, we will just be much more effective in that and it'll also drive margins and we will be able to serve our customers better and then lastly when we do an M&A we will be even more effective in integrating you know these companies into our structure so overall the structure has been designed or is being designed for growth okay perfect thank you and one moment for our next question

Our next question will be coming from Mike Roxland of Truist Securities. Your line is open.

Thank you, Oli, Larry, and Bill for taking my questions. I just wanted to follow up quickly on your response to the last question. On the portfolio transformation, does that require any additional headcount given the Salesforce split?

You mean in our evolution to modernize the organization?

Exactly, yeah.

But it's not designed to reduce headcount. That has never been... He said, ask if it increases it. No, it won't increase it. No, it won't increase it. We've had some questions whether we will be checking out headcounts. It's not designed to take our headcount, but we do believe we will be able to operate much more effectively. And as we are adding volume or growing our volume, we will be able to do that without adding further headcount to the organization. So, in effect, we will be operating much more effectively. But we certainly won't be adding. Gotcha.

Because I was just wondering, as your sales force, it sounds like your sales force is now going to become specialists in targeted products.

The sales force will be more generalist and they will turn more from farmers to hunters and then we have created a very strong product management function that will be more of a support to sales. So rather than our sales teams acting as product managers, we will have a dedicated central product management function by material solution serving the sales teams, but also our customers.

Got it. No, it's very clear. Thank you. In terms of global industrial packaging, what do you attribute your outperformance relative to the market to? Obviously, You showed sequential improvement in anemia despite PMIs remaining depressed. So I'm wondering if there's something that you're doing differently, some type of restocking. How are you able to outperform despite the broader market still being so much challenged?

Well, I mean, I gave a lot of kudos to our teams and, you know, that's one of them. But it's really our long-term focus on customer service that's driving that. You know, imagine you probably had the experience of dealing with a vendor or a store where you got a really bad service and you go home, you tell your family, I'm never going to go back there again. And that word spreads everywhere. And conversely, you'll probably also try to shop somewhere or deal with a vendor that just provided you that exceptional level of customer service. And then you tell people that as well, and then you prefer that, and you're even prepared to pay a bit more for that service. And the same thing goes with our customers. So we have for a very long time focused on providing legendary customer service, and we get better and better and better. And in that respect, I mean, we're chasing perfection. knowing that we will never catch it but in the process we have become best in class and that is really why we can deliver solid results in this current environment got it and of course one high quality sorry no i'm sorry please go on I was just going to add, on top of that, providing top quality products, as you would expect.

Got it. And just one final question before turning it over. In terms of PPS and non-indexed customers, how much of your business is non-indexed? And are you fully implementing announced price increases with those non-indexed customers?

I'll let Larry answer. Yeah, so when we look at that, it's really about 35% of our customers in the URB space. And so just driving, yeah, we've had great success.

I can't tell you it's 100% of that 35%, but it's pretty close.

Got it. Thank you guys very much, and good luck in the final quarter. Thanks, Mike. Thank you.

And our next question will be coming from Gabe Haiti of Wells Fargo. Your line is open.

Olli, Larry, Bill, good morning.

Good morning. Good morning, Gabe.

I wanted to, Larry, you gave us an inch, so I'm going for the mile. If you can help us in the fiscal 25 on some of the known items that you kind of called out, and I'm thinking about Delta Petroleum for sure. You said a little bit of a headwind in the fourth quarter. Is that maybe a $15 to $20 million annualized EBITDA number that we should be thinking about, you know, for the assets sold? And then kind of gross price flowing through based on price increases that have already been reflected in the indices. And then I guess lastly, I think there were some higher compensation items called out in the press release. Is that kind of getting back to normal, which I guess is a good thing? But any other kind of one-time items in the next year that we should be thinking about?

Yeah. On Delta, no, that number's high. It was about – our $90 million was about eight and a half times, you know, after even dealing with stranded costs and that kind of stuff. So more in – well, you can do the math on that. yeah now that that business vastly during the year so the fourth quarter actually was going to be a little higher than that so it would be approaching four million in that quarter but for a full year you know eight and a half times on ninety million so you know relative to the pricing element you know we obviously had the $20 increase on URB, that ends up being about a million that will hit in the fourth quarter this year because it will flow through mostly in October only. And on that 22, at a full year basis, you know, for, you know, $10 on URB, you know, you basically have, you know, about $650 million. I'm sorry, what's that number, Dan? $650,000 a month. Yeah, $650,000 a month on the URB. And the incremental price increase that we had on the container board – sorry, I'm struggling through my notes here for a minute here. Matt, what's the number on container board? for $10. Yeah, $750 per $10, so on those elements.

And that was recognized in June, so it'll be fully beneficial to Q4.

Right, yeah. Does that address that question?

It does. I mean, the other thing I was thinking about was I don't think that I heard economic downtime mentioned in the prepared remarks or in the slides. Just curious kind of where you guys are running in the system today.

Yeah, we've been running full out in our container board business. We've had some economic downtime in our URB space. Do you have that number, Bill? It was nothing significant.

Yeah, I know it's minor. Any economic and any paper grade, but near optimal levels from a backlog perspective and container board. Yeah.

Okay. And one last one, just on the M&A front, obviously you guys have been active there. You called out kind of being 3.6 times levered on a pro forma basis. Are there still opportunities out there for given kind of where we are in the interest rate cycle? Or do you feel like it might get more competitive again if the Fed, in fact, does cut?

No, we still have a lot of opportunities. We have a very robust pipeline. We are engaged with a lot of companies and owners. We continue to do that. We don't always decide the timing, so we have to continue that. And if an opportunity comes along, although the timing may not be ideal, we have the capability to do it. But I'll tell you that our focus right now is to pay down debts so that we get back to the two and a two and a half leverage ratio level.

Understood. Thank you. Thank you.

One moment for our next question. Our next question will be coming from Brian Butler of Staple. Your line is open.

Thank you. Good morning. Thanks for taking the questions. Hi, Brian.

Just maybe on the first one, when you talk about that $160 million kind of in a more normalized volume environment, you know, what what has to happen for that i mean are we there at at current kind of volumes right now if those just kind of sustain through the back you know or through 2025 or do we really need to see some step up in the macro recovery to kind of get back to kind of the normalized 2022 levels yeah we we need a a step change just to give you a perspective on um you know where where we were and and is volumes

versus q3 22 um if you if you look back and let me just get his number just for example for total for total git you know if i go to q3 22 to 21 was down 4.3 the following year it was down another 10.7 and we've only regained four percent of that okay so pretty significant drop-off scale from where we were. If I go to, you know, IBCs, they were, because of acquisitions and stuff, we were up 9.5 and Q3 22 over 21, but we were down 13.7% 22. IBCs, because of our acquisitions, have come back. That's pretty strong. But if I go to paper, in our total mill volumes, 22 to 21 was down 2.6. Next year, it was down 16.3%. we've only recovered to 7.9 percent up so we still have a long way to go to get back to the volume levels that we were at and so yeah it is more of a macro issue uh brian than it is um you know you know just some marginal marginal change so if i look at pps as a whole for us to get if we got back to normal volume levels and this is not yet including the impact of the price changes that have been recognized. This is just sort of average value add for the year. We pick up another $56 million of EBITDA in our BPS business. And in our old-line GIP business, it's a $90 million lift. And then you go into the acquisitions that we've made, and if you get back to normalized volumes for them, you end up picking up another $21 million. So it's a big macro piece against the entire environment.

Brian, if I can just add a little bit of color to the 160 million as well. So as Larry alluded to, that's not one single factor, Ash. You have to consider that much of current volume dynamics is driven by macroeconomic factors. So while we proved in Q3 that we can outpace the macro on volume, it is still the primary bottleneck to truly rebounding demand. And one major factor in that equation is the current interest rate situation. In previous instances, interest rate costs have been shown to drive production, specifically pent-up housing demands, both for new builds and existing housing sales. And that would be a major volume driver for us. As you know, when you move house or buy a new house, You do more than just buy the house. You paint the walls in the old house for it to sell better. You may buy new carpets, appliances, and hundreds of other items for when that happens. And all of those things, they drive industrial production and demand for our products. And then another component as an example would be air. I just talked about that earlier. We are experiencing short-term softness. Some of it is interest rate playing in action, too. And as that softener debates, again, you will see that end segment improve. So there's a lot of, you know, factors involved in returning to the 160.

Okay, that's helpful. And the second question, when you think of the operating model evolution that you're kind of in the process for, What's the timeline on how long that takes to kind of implement? And is there a, you know, during that time, is there a short-term impact either on slower sales or higher costs as that gets pushed through?

On sales, no. On costs, obviously, we're doing this in conjunction with changing our fiscal year, as you know. And there are some costs involved in that, but it's not material.

Yeah, we had disclosed, Brian, that we were going to end up incurring, you know, about $6 to $7 million related to just the cost of going through this change.

Okay, and is that change kind of completed in fiscal 24 here, or does that really roll into 25 as well?

We'll be rolling. We're evolving into this, and we will roll out the details in December, but we will be operating in this model beginning November 1st.

Okay, and then maybe one last one. On your shift towards more polymers versus kind of the other segments, how do you view kind of the market organic growth for the polymers and that kind of specialty piece that you're moving into versus the other segments? What does that organic growth look like?

Well, first of all, why are we doing this? Well, we are growing in polymer-based products because the margin profile is much, much higher. And the cyclicality of those products is much, much lower. So we want to be a higher margin company that's a lot less cyclical. On the organic side, I mean, next week I'm traveling to Malaysia to open a new IBC plant, which is polymer. We are adding lines all over the world all the time. We opened earlier this year, we opened another IBC plant in Turkey. So yes, we're also growing organically.

Thank you for taking the questions.

Again, as a reminder, to ask the question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. And our next question will be coming from George Stappos of Bank of America Securities. Your line is open, George.

Hi, everyone. Good morning. Hope you're doing well.

Hey, so we've touched on this a couple of different ways on the call regarding Europe. But Olli, as you think about it, is there a horizon where you won't be able to outperform Europe in spite of your model, in spite of the legendary customer service? Or do you think the next couple of course, for this reason, you should be able to outperform in Europe in spite of what's been sluggish conditions? If you could put maybe some quantification on that somewhat sort of qualitative question. Secondly, can you talk about what your exit trends were by big business into the fourth quarter? I'm particularly interested in what you're seeing in core choice in terms of the marginal trends there. And I'll leave it there. I might have one follow-up.

Well, thanks for that, Josh. On Europe, first of all, the answer to the question is yes, I believe we can still outperform. And why do I believe that? Well, if we look back, and I have to go back to our philosophy of value over volume, we have said no to quite a lot of business in the past. And we can see now that after a certain period, that business is trickling back to us. So that's one reason for why we will continue to outperform. Another one is we are really focused on growth in segments where we have not historically been very strong. One is food and pharma, and we have teams really working hard on getting into those segments because the margins are higher, it's much more sticky, and it's much less cyclical as well. so so with that uh those combinations i believe that we will continue to see solid performance come out of europe and we have added more capacity as well by the way organically sequentially on on core choice um core choice was up well all the businesses but but but yeah lead with core choice sorry about that i was just answering your second question um so sequentially core choice was also up nearly 10% as container board demand continued to improve, which was slightly better than we expected in our Q2 guidance. And I would remind you and our other investors of our niche role in North America, container board as a champion of the independence, which gives us earlier visibility to demand cycles than our competition, as we have a view of the full markets. We are positioned well for this recovery. Champion of the independent is a competitive advantage to us. So we are skilled at handling complexity. We can produce any fluke, any size run, and any liner board combination with speed and probability. So those are some of the reasons for why we see that sort of growth in container board.

And Oli, just in general, and what were the other exit trends that you were seeing in the quarter?

I can't really talk about quarter four, but the exiting quarter three, it's still choppy. I would say it's very choppy. It's a little bit like walking in sand. You take two steps forward and then you slide half a step backwards. So we have months where we see, yeah, it's all coming. And then the following months, we see it dive again. And then the next month it goes up again. The overall trend is positive across the segment.

The one thing, August is always tough because it's vacation holiday month in Europe. It always gets choppy and it also goes a lot to harvest seasons in the south of Europe. They're substantially the same as what we saw exiting in July.

Thank you. Last question following, I'll turn it over, you know, back to container board core choice and the business overall. To the extent that you have a view and your customers could offer one that you'd share on this conference call, you know, volumes for the calendar second quarter in cargated markets were okay, not great, you know, flat, up a little bit, down a little bit, depending on, you know, what adjustment you wanted to make. but all very easy comparisons. What are your customers saying? What are you seeing through your businesses in terms of why we're seeing that market trend, recognizing you're doing better? And what kind of holiday, calendar, fourth quarter season are we setting up for in the corrugated markets, given what you're seeing? Thank you, guys, and good luck the rest of the year.

Thank you. Yeah, I mean, you know, George, we're hearing the same thing that we've been expressing. I mean, it's just a mixed bag out there. I mean, if you read, like, the Dow CEO's comments in their earnings call, it's like, you know, he's talking very positively. If interest rates drop and home sales kick off, we feel the same way. I mean, you know, and we see others I think Henkel was very positive. You had other BASF not. In the paper business, it's the same kind of mixed bag as what we're hearing from our people on the street. It's one week it's hot, the next week it's not. That's why we termed it as mixed.

I think a rate drop will obviously affect this because the average person looks at their credit card debts and their payments and it's linked to... to the interest rates, and if they go down, they get a little bit more money between their hands. They shop more on Amazon, and, you know, it helps the industry. So we don't have a crystal ball, Josh. I'm trying to say it.

Well, you're closer to it than we are, so we appreciate the color as always. Thank you, guys.

Thank you, George.

And one moment for our next question. Our next question is a follow-up from Gabe Haiti of Wells Fargo. Your line is open.

Thank you. Real quick, when we're talking about, I guess, the different end markets, can you remind us, roughly speaking, in your North American GIP business, how much is directionally tied to housing?

It's difficult to give you a number on that. It really is, because it Take chemicals. Bulk chemicals is one of our largest ones. Some goes into insulation. Some goes into the soles in your shoes. Some goes into the fridge you buy. It's just difficult to sort of make that out.

We don't have any good information on that at all, Gabe.

No worries. Thank you.

And I would now like to turn the conference back to Oli for closing remarks.

Thank you, Ant. First of all, a big thank you for all the questions and your continued interest and drive. We really appreciate that. And we look forward to reporting our Q4 2024 earnings to you in early December and subsequently also seeing you at our Investor Day on December 11th in Midtown New York. Have a wonderful day, everyone.

And this concludes today's conference call. Thank you for participating. You may now disconnect.